What is StockTok and why might it be a problem?

By James Donald, Head of Digital

When you think of TikTok it may be lip syncing videos and dances that spring to mind, or #CatsOfTikTok (currently 40.9 billion views). But there’s much more to a platform which hosts an increasingly diverse range of interests, including a growing number of amateur investors who have discovered investing through apps such as Robinhood.

Do you know what it means to double your stimmy? If so, you’re probably already familiar with the world of StockTok, also known as FinTok. For those of you that are not, let me explain. StockTok videos are about investing, or more specifically getting rich. Videos range from investment advice to explaining stock market terms, to simply bragging about how much money you have made.

Scrolling through StockTok and FinTok videos there are some obvious recurring themes. “Stocks that will double in 2021”. “How to double your stimmy” (US government stimulus payment). “If you invested $X in this stock one year ago you’d now have $X” (Tesla is a common recurrence here). Promises of massive financial gains from minimal effort. This is not a place for diversified portfolios or warnings that past returns are no guarantee of future performance.

TikTok Investors on Twitter documents some of the more spurious advice. In one video that was widely circulated in January, “Chad and Jenny” detail how they “fund their lifestyle”. Chad explains that he trades stocks on Robinhood, and that investing may sound intimidating but it’s actually really simple. He sees a stock going up so he buys it, then he watches it until it stops going up and he sells it. Genius! In the previous month this strategy had seen him turn $400 into over $14,000. Why isn’t everyone doing this?

In this case, the backlash was swift and the video soon deleted. The problem is Robinhood’s and FinTok’s growth have coincided with a period of strong market performance since 2019. Markets suffered badly at the beginning of the pandemic, but soon bounced back. The S&P 500 hit all time highs in late 2020 and early 2021, this rebound meant there was money to be made. When markets are going up everyone is an investment genius.

This has come at a time when people have been forced to spend more time at home than ever and are looking for ways to pass the time. They see videos promising massive returns, and evidence that people have made thousands of dollars. But what happens when markets head in the other direction?

That’s the risk.

TikTok investors speak in convincing language, using terms that make it sound like they know what they are talking about. Sure, turning $4,000 into $1 million in eight weeks simply by doubling your money every week is obviously ridiculous, but others are more convincing to those new to this.

If an individual started investing in April last year they’ve only seen markets going up and have evidence of the money they have made. There’s always an audience for people telling you how to make quick and easy money. A young person with no investment experience might well trust them. What’s risky about investing in Tesla? Elon Musk is the richest man in the world after all.

We saw it with the Reddit driven increase in GameStop’s share price. People saw the price going up, they heard of the incredible returns and the money people had made in a short space of time. They wanted a piece of it. Stick it to the hedge funds and make money from it. Win win. But they invested too late. They jumped in at the top, and they lost money. There is a danger that people could be drawn in only to lose money they can’t afford to lose.

What can be done about it? In the UK, investment firms and platforms have to warn in their marketing that investments can go down as well as up and past returns are no guarantee of future performance. It is next to impossible to regulate what people are saying in their videos which are being viewed all over the world, which means it is only TikTok itself which can act here. The pandemic brought about a change in approach from Twitter and Facebook, who became less hesitant to post warnings of misinformation and introduced COVID-19 information hubs. Perhaps TikTok could include its own warning about the nature of investments on any video posted with #StockTok or #FinTok, or even create a financial information hub with some real, sensible investment advice. TikTok’s users are predominantly in the 18-24 age bracket and if this could be extended to other topics too it could be an opportunity for TikTok to show it is a force for good after months of damaging stories about its Chinese ownership.

Until then, unfortunately there are going to be people losing money.

James Donald

Head of Digital